Coronavirus outbreak: B.C., Canada likely to see economic impact as spread accelerates in China

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The coronavirus outbreak that has killed 81 people in China - mostly in the Central city of Wuhan and the surrounding Hubei province - is likely already having an effect on Canada and B.C.’s economy, economists say.

The outbreak, which Chinese officials said appears to be accelerating this week after first hitting global headlines in mid-January, has already rendered almost 3,000 people ill and resulted in confirmed or suspected cases here in Canada as well as in places like the United States, Japan, South Korea, Taiwan and Southeast Asia.

The cases have been so severe that Beijing has ordered the lockdown of Wuhan and many communities in Hubei, restricting travel and business operations of a region with a population of close to 60 million - bringing the central areas of China to a standstill.

Allison Boulton, a Vancouver-based veteran international trade advisor who specializes in the wine and agrifood markets, said the timing of the outbreak - the cases happened in the midst of the Lunar New Year holiday season, China’s biggest wave of travel, retail consumption and restaurant attendance annually - will be especially damaging to companies doing business in China.

“I can’t think of a worse time,” Boulton said. “I’ve seen it described as Canadian Halloween, Thanksgiving, Christmas, New Year’s, Valentine’s Day and Mother’s Day all rolled into one. This is when so much of the gift-buying happens. It’s going out for supper. It’s buying more food because people are coming over for dinner. It’s travelling. You often hear it being called the world’s largest migration, with hundreds of millions of people travelling. And when you see the news report, people are not even going outside. Shops are closed. So this depth of how much this will hurt the economy will take a few months to unfold.”

Boulton estimates that B.C. and Canadian wine exporters sell about 80-90% of their wine in China during the Lunar New Year holidays, and if consumers suddenly stop buying products because of the coronavirus outbreak, the resulting backlog of stock will likely create strains between Canadian producers shipping to China and Chinese distributors.

“You think about seafood being impacted, because people stop eating out,” she said, adding that Canadian exporters must look at being flexible to support the needs of Chinese partners dealing with a soft consumer market. “You think about exports like fruits… and this will extend into the service industry. This current outbreak is going to put a strain on your business relationships, and how companies on both side of the Pacific deal with this issue will be a very big indicator of how the business relationship [between Canadian producers and Chinese distributors) will continue long-term.”

Andreas Schotter, associate professor of international business at the Ivey Business School at Western Ontario, is a former expatriate executive in the Chinese market and has close ties to the East Asia region. Schotter, who was in Hong Kong earlier in January and is scheduled for a stopover in Singapore next week, said one encouraging sign is that Beijing appears to be handling the outbreak head-on (with aggressive quarantines in Wuhan and Hubei) rather than suppressing information on reported cases for months during the SARS outbreak in 2003.

“I actually witnessed [the SARS outbreak] firsthand during my residency in Hong Kong,” Schotter said of the 2003 event that killed 774 people in 17 countries with a fatality rate of almost 10%. “… The situation is very fluid right now, but the good news is that this crisis seems to be handled very differently from the SARS outbreak some 17 years ago. I am confident that this virus will be handled with outmost professionalisms - albeit with the fact that we will likely see more spread globally.”

But Schotter also added that the outbreak will have an unquestionable impact on the economy both in China and globally, as the resulting malaise on a usually vibrant economic period will undoubtedly dent figures for travel and consumption.

“We will learn more about the supply chain effects once the Chinese New Year holidays have passed,” he said. “Shanghai has already extended the holiday period; and if Gungdong will do so too, there might be broader effects across numerous industries. And yes, here will be an impact on tourism and the related retail and restaurant consumption, particularly in Vancouver and Toronto.

“In case of a more widespread outbreak in Canada, this will also cause local residents to avoid restaurants more,” Schotter added. 

Bryan Yu, deputy chief economist with Central 1 Credit Union in Vancouver, said the 2003 SARS outbreak gives a “good indication” of what may happen to Canadian tourism sectors if the current situation intensifies. Yu noted 2003 statistics showing a clear and precipitous drop of visitor counts from Asia from 50,000 monthly in late 2002 to around 20,000 by May 2003, although he cautioned there were other factors - such as a strong Canadian dollar - possibly at play.

What’s concerning, he added, is that visitor numbers from Asia - especially from China - as grown sevenfold since 2003, meaning that disruptions in Chinese traffic will have a proportionally bigger impact on the B.C. economy if the outbreak continues.

“Will it expand to other sectors? It’s going to be dependent on China’s growth rate in terms of how the market views this event has having an impact on China’s growth,” Yu said. “It’s a question of how long this will last… I think the market is somewhat reacting to these types of concerns, but it’s probably too early to make any adjustments on growth rates - even if we see some minor slowdown.”

Another factor, he added, is that the current global economic environment is already facing a number of uncertainties - and another headwind is potentially problematic.

There’s still a lot of concerns related to trade, and the growth dynamics in the global economy remain somewhat modest,” Yu said. “So this type of pullback - even a temporary one - is already rattling the markets a bit. We are waiting to see where it goes from here, to see whether it actually impacts economic output and expectations for trade.”